GOP Proposes Legislation Eliminating Fannie And Freddie

By Adrianna McGinley

Acting Director of the Federal Housing Finance Administration (FHFA) and Fannie Mae/Freddie Mac conservator Edward DeMarco told a House subcommittee Thursday that he is supportive but wary of a proposal to increase private mortgage investments.

Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, Rep. Scott Garrett (R-N.J.), proposed last week the “Private Mortgage Market Investment Act,” which would eliminate the bailed out Fannie Mae and Freddie Mac in order to encourage private secondary mortgage investments.

“By facilitating the adjudication of disagreements between investors and issuers, secondly by clarifying the rules around the first lean holders rights, and third by preventing government forced loan modifications that would negatively impact investors, investors will finally have the certainty that they need to get back into the market,” Garrett said in his opening remarks.

DeMarco agreed on the need to move mortgage investments away from government owned entities, but said there is still much that needs to be considered before legislation such as the one proposed could be enacted. Even then, he seemed hesitatant to confirm that Fannie and Freddie could be 100 percent eliminated.

“If the market has certainty that these are the rules of the road, and that these rules of the road aren’t going to be changing every three months, I believe that the private market can step in and do a great portion of what is currently being done by Fannie and Freddie.”

DeMarco acknowledged that the third year anniversary of conservatorship is approaching, but it not meant to be a long term solution, merely an opportunity to maintain a stable market while lawmakers deliberated on appropriate housing finance reform.

Rep. Barney Frank (D-Mass.) also criticized the committee for acting too slowly on housing legislation.

“This bill is premised on the situation when there is no more Fannie and Freddie, but this committee has the power to deal with that and hasn’t moved on anything in that regard.”

Geithner: Changes Coming To Fannie Mae And Freddie Mac

The two-headed mortgage lending monster known as Fannie Mae and Freddie Mac will more than likely undergo serious reforms next year, according to U.S. Treasury Secretary Tim Geithner.

The pair of GSE’s, both of which required federal bailouts in 2008 after faltering as a result of the housing collapse, are headed for certain changes when the Obama administration puts forth a plan to overhaul the industry in early 2011.

Geithner told a panel of executive lending officers on Tuesday that the administration “will not support returning Fannie and Freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support.”

“We will not support a return to the system where private gains are subsidized by taxpayer losses,” he added.

Before being placed under total government control in 2008, the twin lenders ran into trouble, stemming mainly from involvement in the subprime mortgage movement in the early 2000’s. Speculators argue that entering that market under federal directives to increase home ownership is what caused Fannie and Freddie to become vulnerable when the skyrocketing housing bubble burst around 2006.

Geithner told the panel that he and Department of Housing and Urban Development (HUD) Secretary Shaun Donovan have been presented with a wide array of options for reforming the system, from nationalization of the lending market to complete government withdrawal.

However, Geithner admitted that as of today, a solution has not yet been reached.

“It’s safe to say there’s no clear consensus yet on how best to design a new system.”

Housing Market Will Face Reforms Within Months, Says Treasury Secretary Geithner

By Benny Martinez - University of New Mexico/Talk Radio News Service

Treasury Secretary Timothy Geithner told the House Financial Services Committee that reforms to the housing finance system should come within months, not years.

Geithner said that changes are necessary to stabilize the housing market and added that a number of proposals have already been put forth as part of financial regulatory reform.

Reform to the two major government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, must expand to the reform of broader housing policies, according to Geithner.

“Any restructuring of Fannie Mae or Freddie Mac is part of the reform of the wider housing finance system,” Getihner said.

The Treasury Department and the Obama administration intend on developing a comprehensive reform plan for delivery to Congress in the coming months. A list of questions to acquire input from all stakeholders will be submitted by April 15, 2010.

Geithner said that the administration “will seek to work closely with the Congress, on a bipartisan basis, prior to finalizing a comprehensive reform plan.”

The Economic Crisis: Failed Government Regulation and Racial Scapegoating

“The evidence is overwhelming. This crisis is a direct consequence of years of regulatory failures by government officials” said Senator Christopher Dodd (D-Conn.) Dodd continued, “the dominant players were not Fannie and Freddie, but the Wall Street firms and their other private sector partners; the mortgage brokers and the unregulated lenders”. At the U.S. Senate Committee on Banking, Housing, and Urban Affairs hearing on “The Genesis of the Current Economic Crisis”, the overall consensus of Senators and panel members was that government regulation failures and Wall Street investors were to blame.

Dodd said, “no one can say that the nation’s financial regulators were not aware of the threats posed by reckless sub-prime lending to homeowners, communities, and indeed the entire country. That threat had already been recognized by Congress”. Senator Robert Casey (D-Pa.) said he was troubled by the fact the Treasury Department wants to commit $250 billion to aid banks without “planning to modify a single loan”. Casey suspects that banks are now holding back on modifying loans because they’re waiting to see if they can sell them to the Treasury Department first, which he believes is the worst things that can happen right now.

The Honorable Marc H. Morial, President and CEO of the National Urban League, said that he wanted to, “set the record straight about what I call the Financial Weapon of Mass Deception: the ugly and insidious and concerted effort to blame minority borrowers for the nation’s current economic straits”. Morial blamed a few conservative reporters such as Fox News’ Neil Cavuto and the Washington Post’s Charles Krauthammer for, “telling the world that this crisis in not the result of a failure of regulation, but the fault of minority borrowers who bit off more than they could chew”. Morial said, “while minorities and low-income borrowers received a disproportionate share of sub-prime loans, the vast majority of sub-prime loans went to white and middle and upper income borrowers.”